Ghana banking reforms have strengthened the sector and reduced the number of banks, but the recapitalization exercise has come at a huge cost to the government and tougher supervision is needed to prevent banks repeating earlier mistakes, analysts warn.
With a population of less than 30 million, Ghana is smaller than many regional peers. Yet its GDP is expected to grow 6.4% in 2019, according to S&P Global Market Intelligence data, while its banking sector's aggregate assets, deposits and profits have risen since 2015.
To further spur growth and ensure the health of the banking system, the Bank of Ghana — the central bank and industry regulator — ordered all global banks to raise their capital to 400 million cedis from 120 million cedis by the end of 2018. This came after an asset quality review that found some banks had inadequate capital, high levels of nonperforming loans and weak corporate governance.
The regulations have reshaped the sector, with the number of banks falling to 23 as of July 2019 from 34 a year earlier, as several forfeited their licences and some merged. Many of Ghana's top banks by assets, including the likes of Ecobank Transnational Inc.'s Ghanaian unit Ecobank Ghana Ltd. and GCB Bank Ltd., had to take steps to comply with the new requirements.

The government also issued around 12 billion cedis in bonds to save some troubled lenders, according to Bloomberg News, and had planned a further 2 billion cedi bond sale to recapitalize five remaining banks — state-owned National Investment Bank Ltd. and Agricultural Development Bank Ltd., plus privately run Prudential Bank Ltd., Universal Merchant Bank Ltd. and OmniBSIC Bank Ghana Ltd. The sale was abandoned after some politicians questioned its legality because banking rules do not allow borrowings to be invested in a bank as equity.
Expensive exercise
Ola Warikoru, an equity research analyst at Stanbic-IBTC, said the new capital requirements had bolstered consumer confidence in the banking sector and prevented runs on bank deposits, but she questioned the long-term implications of such a wide-ranging bailout.
"At what point can the central bank step back from the investments it's making in these banks? It's also an expensive method of saving them," she said.
"Stepping in to save five banks it seems like a lot of additional work for the regulator given that it's needed for many other tasks during this transition process."
The failed bond sale led Ghana to inject 800 million cedis into Ghana Amalgamated Trust, a special purpose vehicle established to rescue the five banks lacking sufficient capital, Bloomberg reported.
"The argument is that a successful sale would require a 100% sovereign guarantee," said Kwesi Boti, an economist at Accra-based Databank.
Work to be done

Tougher regulations have helped to reduce Ghana's nonperforming loans ratio between 2017 and 2018, according to S&P Global Market Intelligence data. Meanwhile, Bank of Ghana data shows that as of April 2019, NPLs totaled 7.16 billion cedis, a decline of 20% versus a year earlier. Nevertheless, more needs to be done, said analysts.
"Injecting capital into these banks isn't a solution to their problems — we should be looking at how they ended up in this situation, otherwise they'll eventually end up there again," said Daniel Seddoh, an executive director at Riscovery Ltd. in Accra.
"We have a lot of banks struggling to find investment opportunities, so they put money where they shouldn't and end up with a mismatch between assets and liabilities.
"The central bank has a lot more to do but it doesn't have the resources."
The regulator's cleanup will also be extended to the nonbank sector, which will require "an injection of a further 6 billion cedis before we can say the financial sector as a whole is on a sound footing," said Boti, adding: "The recapitalization exercise has been successful, but it came at a huge cost to the government."
Nonbank financial institutions are a key component of Ghana's economy, as just 58% of adults have access to a bank account, according to World Bank data.
Positive outlook
Banking consolidation should enable lenders to do bigger transactions than they could do previously when it was a more fragmented market, said Warikoru, noting central bank plans to introduce a corporate governance code.
"We'll likely see more consolidation with a further reduction in the number of banks," she said, noting the central bank had previously indicated the ideal number could be 12 to 14.
With the sector still maturing, Warikou said heavyweights such as Ecobank Ghana and GCB Bank are expected to perform well in the corporate sector and in retail banking, respectively.
"As the banking industry strengthens due to better regulations and an improved supervisory framework, we expect that overall the sector will prosper," said Warikoru.
"It's a broadly positive outlook. The big banks will become more dominant."
As of Oct. 2, US$1 was equivalent to 5.38 Ghanaian cedis.
